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Republicans Reject Obama Budget Plan

President hits road to sell his proposal for $1.6 trln in tax increases, $400 bln in entitlement cuts.

Congressional Republicans dug in to fight President Barack Obama’s plan to skirt the fiscal cliff, rejecting his tax-and-spending proposal as the president heads out today to sell it to the American public.

Republicans complained that the offer was little more than a rehash of old budget proposals, setting the stage for more contentious negotiations over the next several weeks as the year-end deadline approaches for more than $600 billion in spending cuts and tax increases to kick in.

“If the president is going to lead on this critical issue, he has to propose a plan that can actually pass,” said Republican Senator Roy Blunt of Missouri. “This is simply not a serious proposal.”

Obama today is scheduled to visit a manufacturing plant in Hatfield, Pennsylvania, about 33 miles north of Philadelphia, to emphasize his call for an extension of George W. Bush-era tax rates for middle-income households. He is using the approach of the holidays to argue that families will curb spending if they don’t know whether they will have to pay more taxes next year.

The president is going to a facility of the Rodon Group, which is the only U.S. manufacturer of K’NEX Brands, which makes Tinkertoys, K’NEX Building Sets and Angry Birds Building Sets. The company also produces plastic parts for the construction and pharmaceutical industries.

The fiscal plan presented by Geithner yesterday was modeled on Obama’s budget proposal from February and includes at least $50 billion in economic stimulus spending for this fiscal year, according to the aides. It would permanently increase the U.S. debt limit to avoid the need for congressional action, said one of the aides, who wasn’t authorized to speak publicly.

Geithner met separately with each of the top four leaders in Congress in their first direct talks since Obama hosted the leaders Nov. 16 at the White House.

Obama and congressional Democrats have insisted that the Bush tax cuts should be allowed to expire at the end of this year for the top 2 percent of taxpayers. The tax cuts should be extended for middle-class taxpayers, they contend.

Republicans reject higher tax rates for all income levels. They are seeking an overhaul of entitlement programs in exchange for raising tax revenue through other methods, such as limiting deductions. They want a higher Medicare eligibility age and an alternative yardstick for calculating inflation that would reduce Social Security cost-of-living adjustments, according to a Republican aide who wasn’t authorized to speak publicly.

The administration has been consistent about its plans during the campaign and after the Nov. 6 election, said Senator Barbara Mikulski, a Maryland Democrat.

“The voters knew what the president was saying,” Mikulski said. “They voted for the president. The election’s over. Let’s get on with it.”

Geithner’s offer, as described by two Republican aides, is based on Obama’s fiscal 2013 budget and his 2011 proposal to the deficit-cutting supercommittee, which last year didn’t come up with a plan all sides could accept.

It would raise taxes for top earners by $1.6 trillion over the next decade with higher rates on income, capital gains, dividends and estates, along with limits on tax breaks. It would call for about $400 billion in cuts to entitlement programs, which Republicans have deemed insufficient.

The plan would either extend or replace a payroll tax cut that is set to expire at the end of the year, according to the Republican aides. It would protect millions more people from having to pay the alternative-minimum tax and defer by a year the federal spending cuts set to start taking effect in January.

The administration hasn’t taken a public position on the extension of the payroll tax cut, which reduces employees’ share of the tax for Social Security to 4.2 percent from 6.2 percent. The current break, which started in 2011, expires Dec. 31.

Geithner said in a Nov. 16 Bloomberg Television interview that the U.S. should abolish the debt ceiling, arguing that it enabled the threat of default in 2011. “The sooner the better,” he said. Republicans have used previous debates over increasing the debt limit to hold out for policy changes.

Infrastructure Spending

The proposal seeks infrastructure spending similar to what Obama proposed in September 2011 in his American Jobs Act, which included $50 billion for roads, rails and airports and $30 billion for schools.

The Congressional Budget Office has warned that if Congress doesn’t avert the fiscal cliff, the economy might slip into recession next year and boost the unemployment rate to 9.1 percent in the fourth quarter of 2013, compared with 7.9 percent now.

House Speaker John Boehner, while urging Obama yesterday to propose “serious spending cuts,” avoided publicly discussing specific options for a budget deal. The speaker wouldn’t say how large a spending cut he seeks for an agreement by year’s end.

It’s not “productive for either side to lay out hard lines” because “there are a lot of options of how to get there,” said Boehner, an Ohio Republican.

Boehner “knows that part of it is a waiting game until the pressure builds to where there is decision,” said Republican Representative Steve King of Iowa. “Barack Obama and John Boehner in the end are going to offer something back here.”

At a briefing yesterday, White House press secretary Jay Carney responded to questions about Republican complaints that the administration wasn’t offering specifics by holding up a proposal Obama presented in September 2011.

Carney said the plan “is very detailed” in how the White House would make cuts and “It is of a piece with his budget that he put forward in February 2012.”

The place where details are missing is “anything specific, politically feasible, or substantial from the Republican side on revenues,” Carney said.

The administration and Democrats say tax rate increases are necessary because deduction caps won’t generate enough money, especially if they are designed to protect charitable contributions and to avoid affecting 98 percent of taxpayers.

A $25,000 cap on deductions with those features would raise about $450 billion over 10 years, less than one-third of what the administration wants, according to a blog post on the White House website by administration economists Gene Sperling and Jason Furman. Keeping tax rates constant would make it more difficult to overhaul the tax code in the future, they said.

That would require any future tax overhaul “to raise taxes on middle-class families simply to preserve lower rates for the most fortunate,” they wrote.

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